Cta 1D CV 09046 D 2018feb12 Ass

Republic of the Philippines
COURT OF TAX APPEALS

Quezon City
FIRST DIVISION
SAN MIGUEL FOODS, INC. CTA Case No. 9046

(as surviving corporation For: Assessment
in a merger involving
MONTEREY FOODS Members:
CORPORATION),
Petitioner, DEL ROSARIO, P.J., Chairperson
UY, and
MINDARO- GRULLA, JJ.
-versus-
COMMISSIONER OF Promulgated:
INTERNAL REVENUE,
Respondent.
x-------------------------------------------
DECISION
MINDARO - GRULLA, !_.:
This is a Petition for Review 1 filed on May 15, 2015 by

San Miguel Foods, Inc. (as surviving corporation in a merger
involving Monterey Foods Corporation) [San Miguel Foods,
Inc., for brevity], as petitioner, against the Commissioner of
Internal Revenue, as respondent, pursuant to Section
7(a)( 1) 2 of Repub lic Act (RA) No. 1125 3 , as amended, as well
1 Docket, Vol. I, pp. 10-45.

2 Sec. 7. Jurisdiction. -The CTA shall exercise:
(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue ; xxx.
3 Act Creating the Court of Tax Appeals .
(
CTA CASE NO. 9046 Page 2 of 41
San Miguel Foods, Inc. vs. CIR
DECISION
as Section 3(a)(1) 4 of Rule 4 and Section 4(a) 5 of Rule 8 of

the Revised Rules of the Court of Tax Appeals, as amended.
Petitioner assails respondent's Final Decision on

Disputed Assessment (FDDA) dated January 12, 2015 that
found it liable for alleged deficiency income tax, value-added
tax (VAT), and documentary stamp tax (DST) in the
aggregate amount of P1,570,938, 751.79, inclusive of
interest, surcharge and compromise penalties for the period
covering January 1, 2010 to August 31, 2010.
Petitioner San Miguel Foods, Inc. is a corporation

organized and existing under Philippine laws, with office
address at 23rd Floor, The JMT Corporate Condominium, ADB
Avenue, Ortigas Center, Pasig City. 6 It is registered with the
Bureau of Internal Revenue (BIR) with Taxpayer
Identification Number (TIN) 000-275-554-000, as evidenced
by its Certificate of Registration issued on January 1, 1996.7
On the other hand, respondent is the duly appointed

Commissioner of the SIR who has the power to decide
disputed assessments, refunds of internal revenue taxes, fees
or other charges, penalties imposed in relation thereto or
other matters arising under the National Internal Revenue
Code (NIRC) or other laws or portions thereof administered
by the SIR. He holds office at 5th Floor, SIR National Office
Building, Agham Road, Diliman, Quezon City.
4 Sec. 3. Cases within the jurisdiction of the Court in Division. -The Court in Division
shall exercise:
(a) Exclusive original over or appellate jurisdiction to review by appeal the following:
(1) Decisions of the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in
relation thereto, or other matters arising under the National Internal Revenue Code
or other laws administered by the Bureau of Internal Revenue.
5 Sec. 4. Where to appeal; mode of appeal. -
(a) An appeal from a decision or ruling or the inaction of the Commissioner of
Internal Revenue on disputed assessments or claim for refund of internal revenue
taxes erroneously or illegally collected, the decision or ruling of the Commissioner
of Customs, the Secretary of Finance, the Secretary of Trade & Industry, the
Secretary of Agriculture, and the Regional Trial Court in the exercise of their original
jurisdiction, shall be taken to the Court by filing before it a petition for review as
provided in Rule 42 of the Rules of Court. The Court in Division shall act on the
appeal.
6 Par. 1, Joint Stipulation of Facts and Issues (JSFI), Docket, Vol. II, p. 1181; Exhibit
"P-1", Docket, Vol. III, pp. 1282-1300.
7
Exhibit "P-2", Docket, Vol. III, p. 1302.
c.
DECISION
On May 31, 2011, petitioner received Letter of Authority 8

(LOA) dated May 12, 2011 from the BIR, authorizing
concerned revenue officers to examine its books of accounts
and other accounting records for all internal revenue taxes for
the period covering January 1 to August 31, 2010. 9
On August 12, 2014, petitioner received the Preliminary

Assessment Notice 10 (PAN) from Officer-In-Charge (OIC)
Assistant Commissioner Nestor 5. Valeroso of the Large
Taxpayers Service assessing petitioner for alleged deficiency
income tax, withholding tax on compensation (WTC), VAT,
and DST in the aggregate amount of P1,842,959,766.53,
inclusive of interest, surcharge, and compromise penalties for
the period January 1 to August 31, 2010. 11
On August 27, 2014, petitioner sent a Letter 12 to the BIR

contesting the proposed imposition of deficiency income tax,
WTC, VAT, and DST on the transfer of properties by Monterey
Foods Corporation (MFC) to petitioner as a result of the
merger between the parties. 13
On October 10, 2014, petitioner received a Formal Letter

of Demand with attached Final Assessment Notices and
Details of Discrepancy 14 ("FLD-FAN" for brevity) dated
October 9, 2014, reiterating the alleged deficiency income
tax, VAT, and DST assessments in connection with the
transfer of properties by MFC to petitioner pursuant to the
merger in the aggregate amount of P1,840,424,492.03. 15
Petitioner then protested 16 the FLD-FAN on November 10,
2014. 17
8 Exhibit "P-25", Docket, Vol. III, p. 1699.

9 Par. 6, JSFI, Docket, Vol. II, p. 1182.
10 Exhibits "P-29" and "R-12", Docket, Vol. III, pp. 1703-1708.
11
Par. 7, JSFI, Docket, Vol. II, p. 1182.
12
Exhibit "P-30", Docket, Vol. III, pp. 1709-1715.
13
14
15 Par. 9, JSFI, Docket, Vol. II, p. 1182.
16
17
c.
DECISION
On January 14, 2015, the FDDA 18 dated January 12,

2015 was issued by OIC-Assistant Commissioner Nestor S.
Valeroso, upholding the deficiency assessments on income
tax, VAT, and DST for the period covering January 1, 2010 to
August 31, 2010 in the aggregate amount of
P1,570,938,751.79, inclusive of interest, surcharge, and
compromise penalties. 19
On February 6, 2015, petitioner filed a Request for

Reconsideration 20 of the FDDA with the respondent. 21
On April 21, 2015, petitioner received a Letter22 dated

March 12, 2015 from respondent informing it of the denial of
its Request for Reconsideration. 23
As a result, petitioner filed the instant Petition for Review

before this Court on May 15, 2015.
Respondent then filed his Answer24 on August 25, 2015

through registered mail and received by the Court on
September 3, 2015, interposing the following Special and
Affirmative Defenses:
"SPECIAL AND AFFIRMATIVE DEFENSES
5. On the basis of the foregoing allegations and in further

support of the Specific Denials herein set forth,
respondent respectfully alleges as her defense that:
6. Basic as a hornbook principle is that, taxes are the

lifeblood of the government and should be collected
without unnecessary hindrance. It is upon taxation
that the Government chiefly relies to obtain the
means to carry on its operations and it is of the utmost
importance that the means adopted to enforce the
collection of taxes levied should be summary and
interfered with as little as possible.
18
Exhibits "P-34" and "R-15, Docket, Vol. III, pp. 1739-1745.
19
20 Exhibit "P-35", Docket, Vol. III, pp. 1746-1764.
21
22 Exhibit "P-3", Docket, Vol. III, p. 1303.
23
24
Docket, Vol. I, pp. 191-213.
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DECISION
The Waivers of the Defense

of Prescription under the
Statute of Limitations of the
Tax Code which was duly
accepted and approved by
respondent and thereafter
received by petitioner are
valid and binding between
them. Hence, the waivers
validly extended the period
to assess petitioner.
7. Section 222(b) of the National Internal Revenue Code

of 1997, as amended states that the three-year
prescriptive period may be extended through
execution of a waiver of defense of prescription
between the taxpayer and the Commissioner of
Internal Revenue (CIR). In order to be valid, the same
must comply with the form and procedures laid down
in Revenue Memorandum Order (RMO) No. 20-90.
8. Petitioner executed three Waivers of the Defense of

Prescription under the Statute of Limitations of the
National Internal Revenue Code covering all internal
revenue taxes for the period .January 1, 2010 to
August 31, 2010, on the following dates:
1. The first waiver (attached herein as Annex A)

was executed on May 20, 2013 and was
notarized on the same date, duly signed and
accepted by respondent on June 4, 2013. It
extended the period to assess until December
31, 2013.
2. The second waiver (attached herein as Annex B)

was executed on September 11, 2013 and was
notarized on the same date, duly signed and
accepted by respondent on September 18,
2013. It extended the period to assess until June
30, 2014. The second waiver was executed
within the period to assess as stated in the first
waiver.
3. The third waiver (attached herein as Annex C)

was executed on January 29, 2014 and was
notarized on the same date. The same was duly
signed and accepted by respondent on February
13, 2014. It extended the period to assess until
December 23, 2014. The second waiver was
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DECISION
executed within the period to assess as stated in

the second waiver.
9. Petitioner alleged that the waivers were defective on

the following grounds:
1. That the waivers failed to state the kind and

amount of tax;
2. That waivers failed to state the date of
acceptance by respondent and
3. That waivers were not duly notarized.
10. The allegations of petitioner do not hold water. For the

first allegation, respondent humbly submits that the
waivers were executed prior to the issuance of
Preliminary Assessment Notice (PAN). It would be
absurd for respondent to determine the kind of tax
and amount of tax at this early stage of audit and
examination otherwise it would run counter to the
principle of due process. Respondent humbly submits
that to require the waivers to specify the kind of tax
and the corresponding amount would be impossible
since these waivers were executed in the course of the
conduct of the audit investigation before the issuance
of PAN
11. Further, the Letter of Authority (LOA) was issued and

duly received by petitioner on March 31, 2011. The
said LOA authorized the bearer thereof to examine the
books of accounts and other accounting records of
petitioner for all internal revenue taxes for the period
January 1, 2010 to August 31, 2010. By accepting the
LOA, petitioner consented to the audit and
examination for all internal revenue taxes for the
period January 1, 2010 to August 31, 2010. Since the
LOA was for all internal revenue taxes, definitely, the
waivers must also be for all internal revenue taxes.
12. For its second allegation, that the waivers did not
state the date of acceptance, again this is a mere
allegation of petitioner not supported by any
evidence. As appearing on the face of the waivers, all
three waivers were accepted by OIC-ACIR, Large
Taxpayers Service, Alfredo V. Misajon on the following
dates: June 4, 2013, September 18, 2013 and
February 13, 2014.
13. For its third allegation that the waivers were not duly
notarized, again the same bears no weight. Any defect
in the notarization was caused by petitioner itself. This
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DECISION
practice should not be permitted and tolerated. The

duty to have the waivers notarized is a duty that
evidently belongs to its representative. Petitioner
cannot thereafter question its action through its
representative and alleged invalidity for its own
advantage.
14. Viewed in the light of the foregoing considerations the

three waivers were valid and binding between
petitioner and respondent.
Assuming for the sake of

argument that the waivers
were not properly
executed, petitioner is
already estopped from
assailing the validity of the
waivers.
15. The essence of estoppel and laches is the failure or

neglect for an unreasonable and unexplained length
of time to do that which by exercising due diligence
could or should have been done earlier; it is the
negligence or omission to assert a right within a
reasonable time warranting a presumption that the
party entitled to assert it either has abandoned or
declined to assert it although there is no absolute rule
as to what constitutes staleness of demand as each
case is to be determined according to its particular
circumstances.
16.Article 1431 of the Civil Code provides that in order

that estoppel may apply to the person, to whom
representations have been made and who claims the
estoppel in his favor must have relied or acted on
such representations. Article 1431 states that:
'Art. 1431. Through estoppel an

admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved as against
the person relying thereon.'
17. The case of Kalalo v. Luz discussed estoppel in this

wise:
'The essential elements of estoppel in

pais may be considered in relation to the
party sought to be estopped, and in relation
to the party invoking the estoppel in his
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DECISION
favor. As related to the party to be

estopped, the essential elements are: (1)
conduct amounting to false representation
or concealment of material facts; or at least
calculated to convey the impression that
the facts are otherwise than, and
inconsistent with, those which the party
subsequently attempts to assert; (2)
intent, or at least expectation that this
conduct shall be acted upon by, or at least
influence, the other party; and (3)
knowledge, actual or constructive, of the
real facts. As related to the party claiming
the estoppel, the essential elements are (1)
lack of knowledge and of the means of
knowledge of the truth as to the facts in
question; (2) reliance, in good faith, upon
the conduct or statements of the party to
be estopped; (3) action or inaction based
thereon of such character as to change the
position or status of the party claiming the
estoppel, to his injury, detriment or
prejudice.I
18. Corollary, Section 2(a) of Rule 131 of the Rules of

Court, on the burden of proof and presumptions,
states as follows:
'SEC. 2 Conclusive presumptions. - The

following are instances of conclusive
presumptions:
'(a) Whenever a party has, by his own

declaration, act, or omission, intentionally
and deliberately led another to believe a
particular thing true, and to act upon such
belief, he cannot, in any litigation arising
out of such declaration, act or omission, be
permitted to falsify it;
I
19. Petitioner, by its own voluntary act, is estopped from

assailing the validity of the waivers. Undisputed is the
fact that the execution of the waivers by both parties
proved to be favorable to petitioner considering that
aforesaid waivers constitute as tools for petitioner by
providing enough time to gather voluminous
documents/records to substitute its position.
20. Through the execution of the waivers, respondent was

misled to believe that petitioner waived its right under
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DECISION
the Statute of Limitations. Petitioner then actively

participated in the audit and examination. A
corporation like petitioner, is of knowledge of the
effects and consequences of the execution of waivers.
It is only when petitioner received an adverse decision
that it questioned the validity of its own actions and
took stance contrary to its previous act.
21. Further, a party having performed affirmative acts

upon which another person based his subsequent
action, cannot thereafter refute his acts or renege on
the effects of the same, to the prejudice of the latter.
In Lopez vs. Ochoa, the Honorable Supreme Court
discussed the relation between waiver and estoppel,
to wit:
'The doctrine of waiver belongs to the

family of, or is based upon, estoppel. This
is especially true where the waiver relied
upon is constructive or implied from the
conduct of a party, when it is said that the
elements of estoppel are attendant.
(2) B. Nature of Doctrine.-The doctrine of

waiver has been characterized as technical,
as of some arbitrariness. It is one of the
most familiar in the law, prevalent in
ancient as well as in modern times
throughout every branch of law as well as
of practice. It is a doctrine resting upon an
equitable principle which courts of law will
recognize, that a person, with full
knowledge of the facts shall not be
permitted to act in a manner inconsistent
with his former position or conduct to the
prejudice of another, a rule of judicial
policy, the legal outgrowth of judicial of
abhorrence so to speak, of a person's
taking inconsistent positions and gaining
advantages thereby through the aid of
courts. The doctrine, it has been said,
belongs to the family of, is of the nature of,
is based upon, estoppel. The essence of
waiver, it has been stated, is estoppel, and
where there is no estoppel, there is no
waiver. 'Waiver' and 'estoppel' are
frequently used as convertible. On the
other hand, it has been said that the terms
are not convertible, that an estoppel in pais
has connections in no wise akin to waiver,
L
DECISION
and that the doctrine of waiver does not

necessarily depend on estoppel or
misrepresentation; thus, a waiver does not
necessarily imply that one has been misled
to his prejudice or into an altered position;
a waiver may be created by acts, conduct,
or declaration to create a technical
estoppel. However, the distinction, it has
been said, is more easily preserved in
dealing with express waiver, but where the
waiver relied upon is constructive or merely
implied from the conduct of a party,
irrespective of what his actual intention
may have been, it is at least questionable if
there are not present some of the elements
of estoppel. '
22. In the Heirs of Cipriano Reyes vs. Calumpang the

Honorable Supreme Court held that a valid waiver
need only consist of the following requisites: (a)
existence of a right; (b) the knowledge of the
existence thereof; and (c) an intention to relinquish
such right. In the case at bar, petitioner knew it could
waive its right under the Statute of Limitations and
manifested its intention in writing
23. Second, petitioner executed not only one waiver, but

three Waivers of Statute of Limitations. This fact alone
will prove that if upon the execution of the first waiver,
petitioner believed that the same was invalid, it should
not have executed the remaining three waivers. It is
quite absurd and unfair that when the assessment
proved to be adverse to petitioner, the very same
waivers utilized by petitioner for its own advantage
will now be used by the very same petitioner to defeat
the validity of the waivers it voluntarily executed.
24. Respondent humbly posits that petitioner's voluntary

act of signing the waivers is tantamount to an assent
or consent to extend the period of assessment. The
act of signing the rest of the waivers already cured the
alleged defect found in the prior waivers. Therefore,
petitioner is now estopped from claiming otherwise.
25. Viewed in the light of the foregoing considerations the

three waivers were valid and binding between
petitioner and respondent.
Assuming for the sake of

argument that the waivers
(
DECISION
were not validly executed,

respondent humbly posits
that RMO 20-90 is an
internal memorandum of
the Bureau of Internal
Revenue; therefore, as
such, it is not a source of
right of a taxpayer.
26. Revenue Memorandum Orders (RMOs) are

issuances that provide directives or instructions;
prescribe guidelines; and outline processes,
operations, activities, workflows, methods and
procedures necessary in the implementation of stated
policies, goals, objectives, plans and programs of the
Bureau in all areas of operations, except auditing.
27. Based on the above definition, it is clear that Revenue

Memorandum Orders are internal in nature that
merely provide guidelines for the operations of the
Bureau of Internal Revenue.
28. Thus, being a mere internal guidelines, it is not a

source of right or obligation of a taxpayer.
29. Such internal guidelines can be likened to the by-laws

of a corporation. The Honorable Supreme Court in the
case of Gokongwei v. SEC explained:
It is recognized by an authorities that every

corporation has the inherent power to
adopt by-laws for its internal government,
and to regulate the conduct and prescribe
the rights and duties of its members
towards itself and among themselves in
reference to the management of the affairs.
30. By-laws merely prescribe the rights and duties of its

members towards itself and among themselves; and
not third parties.
31. Corollary thereto, like by-laws of a corporation, third

parties to Revenue Memorandum Orders cannot
invoke any of its provisions, since these are mere
guidelines and regulations directed to employees of
the Bureau of internal Revenue. It cannot and should
not be a source of right of a taxpayer.
32.At most any non-compliance with Revenue

Memorandum Orders should only be a cause for
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DECISION
disciplinary action on the erring employee of the

Bureau of Internal Revenue. It should not affect the
validity of any official duty performed by such
employee.
33. Therefore, for laws or regulations to be a source of

right or obligation of the general public, official
publication is indispensable.
34. Again, at the risk of being repetitive, RMO 20-90 was

never published in an official publication for it to be a
source of right of a taxpayer. Said RMO merely
governs the internal operations of the Bureau of
Internal Revenue as regards the Waiver of the Statute
of Limitations.
35. Thus, clearly, RMO 20-90 cannot be invoked by a

taxpayer to invalidate official acts performed and any
non-compliance thereto, at most, said RMO can only
subject the erring employee of the Bureau of Internal
Revenue to disciplinary action.
36. Therefore, the waivers voluntarily executed by

petitioner, are binding; thereby validly extending the
period to assess deficiency taxes from petitioner.
Petitioner is liable to pay

VAT.
37.Petitioner alleged that the assessment for its VAT

violated the rule on non-retroactivity of rulings under
Section 246 of the 1997 NIRC to which respondent
begs to disagree.
38. Petitioner should be reminded that it was Monterey

Food Corporation (MFC) who requested for a
confirmatory ruling. BIR Ruling No 424-2014 was
issued in response to the facts as presented by MFC
when they requested for the clarification in 201 D.
Thus, the effect rightfully reflected in the 2010
deficiency tax assessment.
39. Section 105 of the 1997 NIRC, as amended, identifies

the persons liable for the VAT, to wit:
SEC. 105. Persons Liable. - Any person

who, in the course of trade or business,
sells barters, exchanges, leases goods or
properties, renders services, and any
person who imports goods shall be subject
~
DECISION
to the value-added tax (VAT) imposed in

Sections 106 to 108 of this Code.
40. Moreover, Section 109 of the NIRC enumerates those

transactions that are exempt from VAT. Nowhere in
Section 109 of the NIRC does it state that the transfer
of assets to a corporation in exchange for shares of
the latter is exempt from VAT. Thus, there was no
legal basis to exempt from VAT the transfer of assets
of Monterey Foods Corporation to San Miguel Foods,
Inc.
41. The basis for the VAT assessment as consequence of

the transfer of properties from you to SMFI is the
higher of the Book Value perFS compared with the
Fair Market Value (FMV) per BIR Form 1927, the table
below shows the said comparison:
Book Value per FS 'FMV per BIR Form

1927' W/C-EVER IS HIGER
Real Properties 5,251,000.00 1,928,601,244.00 1,928,601,244.00
Land & Improvements 922,806,000.00 146,436,694.88 922,806,000.00
Building & Building Improvements 637,857,000.00 479,146,500.29 637,857,000.00
Machineries & Equipment 118,386,000.00 113,431,421.86 118,386,000.00
Capital Projects in Progress 224,263,000.00 290,780,468.03 290,780.468.03
Intangible assets-net 3.000.00 7,427.00 7.427.00
Total Assets, net of Cash 3,198.031.000.00 4,268.240,303.42 3,898,438,139.03
& Biological Assets
A corporation
contemplating mergerI
dissolution or
reorganization must
comply with Section 52 (c)
of the NIRC of 1997, as
amended, as well as its
implementing revenue
regulations.
42. A corporation contemplating merger or dissolution

must comply with the provisions of the NIRC of 1997,
as amended. Compliance with the provisions of the
NIRC is necessary to ensure that any tax liability
should be paid. Related provisions of the NIRC of 1997
as amended are quoted hereunder for easy reference.
SEC. 52. Corporation Returns. -
XXX XXX XXX
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DECISION
(C) Return of Corporation

Contemplating Dissolution or
Reorganization.- Every corporation
shall, within thirty (30) days after the
adoption by the corporation of a
resolution or plan for its dissolution, or
for the liquidation of the whole or any
part of its capital stock, including a
corporation which has been notified of
possible involuntary dissolution by the
Securities and Exchange Commission,
or for its reorganization, render a
correct return to the Commissioner,
verified under oath, setting forth the
terms of such resolution or plan and
such other information as the
Secretary of Finance, upon
recommendation of the commissioner,
shall, by rules and regulations, prescribe.
The dissolving or reorganizing

corporation shall, prior to the issuance
by the Securities and Exchange
Commission of the Certificate of
Dissolution or Reorganization, as may
be defined by rules and regulations
prescribed by the Secretary of Finance,
upon recommendation of the
Commissioner, secure a certificate of
tax clearance from the Bureau of
Internal Revenue which certificate
shall be submitted to the Securities
and Exchange Commission.
SEC. 235. Preservation of Books and

Accounts and Other Accounting
Records.-
XXX XXX XXX
(e) In the exercise of the Commissioner's

power under Section 5(8) to obtain
information from other persons in which
case, another or separate examination and
inspection may be made. Examination and
inspection of books of accounts and other
accounting records shall be done in the
taxpayer's office or place of business or in
the office of the Bureau of Internal
Revenue. All corporations, partnerships or
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DECISION
persons that retire from business shall,

within ten (10) days from the date of
retirement or within such period of time as
may be allowed by the Commissioner in
special cases, submit their books of
accounts, including the subsidiary books
and other accounting records to the
Commissioner or any of his deputies for
examination, after which they shall be
returned. Corporations and
partnerships contemplating
dissolution must notify the
Commissioner and shall not be
dissolved until cleared of any tax
liability.
41. Further, Revenue Regulations 11-2008 was issued to

address relevant issues relating to registration, its
update, and cancellation, to wit:
REVENUE REGULATIONS NO. 11-2008
SUBJECT: CONSOLIDATED REVENUE

REGULATIONS ON
PRIMARY REGISTRATION,
ITS UPDATE, AND
CANCELLATION
TO: ALL INTERNAL REVENUE

OFFICERS AND OTHER
CONCERNED
Section 1. Scope. - Pursuant to Section

244 of the 1997 National Internal Revenue
Code (Code), as amended, in relation to
Chapter II of Title IX specifically Section
236 of the same Code, these regulations
are hereby promulgated in order to
consolidate and update all existing
revenue regulations relative to primary
registration particularly on the following:
(a) Registration, updates and

cancellation procedures;
(b) Documentary requirements;
(c) Registration forms;
(d) Annual Registration fee;
(e) Certification fee; and
(f) Penalties for registration-related
violations
L.
DECISION
SEC. 14 CANCELLATION OF
REGISTRATION. - The cancellation of
registration may either pertain to
cancellation of business registration
and/or TIN. The cancellation of the
Business registration shall not
automatically cancel the TIN of the person.
TIN is cancelled upon:
a) Death of an individual;
b) Dissolution, merger or consolidation of
juridical person;
c) Discovery of a taxpayer having multiple
TIN's; and
d) Payment of estate tax by the heirs,
administrator or executor (TIN of the
Estate). However, in case of additional
properties uncovered after payment of
estate tax, the TIN previously issued for
such estate shall be re-activated in
order to facilitate the filing of the
amended estate tax return and shall be
cancelled upon full settlement of the
tax liabilities of the estate.
Whereas, the cancellation of business

registration may be granted on the
following instance:
a) Closure/Cessation of business
operation;
b) Dissolution of corporation/partnership;
c) MergerI Consolidation;
d) Death of an individual.
Cancellation of business
registration due to any of the above
instances requires the filing of a
notice of closure or cessation of
business in the ROO where registered,
by accomplishing the prescribed
registration updates form. Upon filing
of the duly-accomplished form, the
taxpayer is required to submit a list of
ending inventory of goods, supplies,
including capital goods; and an
inventory/list of unused sales
invoices/official receipts (SI/OR) and
all other unutilized accounting form
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DECISION
(e.g., vouchers, debit/credit memos,

delivery receipts, purchase orders,
etc.). The unused sales invoices/official
and all other unutilized accounting forms
shall be physically submitted to the ROO
where the head office (HO) is registered or
where the Authority to Print (ATP) was
secured. The taxpayer shall also surrender
all business notices and permits as well as
the COR for cancellation. In case of
cancellation of a branch, the submission of
the unused SI/OR for destruction shall be
done with the BIR office where the A TP
was issued.
The ROO, upon receipt of the notice,

registration update, inventory list of
goods, inventory list of unused sales
invoices/official receipts/other accounting
forms shall:
A. 'End date' the tax types of the taxpayer;

B. Destruct, in the presence of the
taxpayer or his authorized
representative, the unutilized SI/ORs
and other accounting forms by cutting
them crosswise and lengthwise at the
middle thereof so that the same shall be
divided into four(4),ensuring that the
same will no longer be used as originally
intended; and
C. Return to taxpayer the destructed

SI/ORs and accounting forms for
burning and/or proper disposition.
In case of merger or consolidation, the

above rules shall also apply to the
dissolve entity (HO and branches).
However, where the registered branches
of the dissolved entity now become
branches of the surviving, it shall be the
responsibility of the surviving entity's
head office to provide them with SI/ORs
for their use while the new set of So/DRs
(with the new name and TIN of the
branch) is in process. In this case the HO
shall ask the BIR Office, where HO is
registered, for a permit for this purpose.
t.,
DECISION
The ROO of the HO of the dissolved

entity inform all the other RDOs, where
the branches are registered, of the
closure/cessation of the business.
Likewise, the ROO of the head office
shall submit a monthly report on
cessation or closure of business to the
taxpayer Assistances Service, Attn:
Chief, Taxpayer Service Programs
Monitoring Division (TSPMD), for the
issuance of Revenue Memorandum
Circular (RMC) circularizing the names
of taxpayers who have ceased business
operations for the month.
Generally, the cancellation of HO

registration shall result to the
cancellation of the business registration
of the branch. This is true if branches are
using same trade name being used by
the HO, otherwise, the taxpayer shall file
an application for update, making one of
its/his existing branches to be the HO. If
the location of the branch selected to be
the HO is under a different ROO, the rule
on transfer of registration shall apply.
All taxpayers who filed for

cancellation of registration due to
closure/cessation or termination of
business shall be subject to immediate
investigation by the BIR office
concerned to determine the taxpayer's
liabilities. The immediate investigation
of the BIR shall not be done if it involves
cancellation of business of a person's
registered branch.
42. In accordance with the above stated provisions, every

corporation shall, within thirty (30) days after the
adoption by the corporation of a resolution or plan for
its merger/dissolution, render a correct return to the
Commissioner, verified under oath, setting forth the
terms of such resolution or plan.
43. Petitioner in its petition merely mentioned that it

entered into a plan of merger with Monterey Foods
Corporation but failed to indicate the date of the Board
Resolution approving the same. Further, it even failed
{
DECISION
to obtain the necessary clearance and certification

from the Bureau of Internal Revenue.
44. Failure to comply with the foregoing will create a

doubt as to the validity of the merger and the alleged
tax exempt transaction entered into between San
Miguel Foods, Inc. and Monterey Foods Corporation.
45.And as discussed above, petitioner failed to comply

with the mandatory requirements provided bylaw and
rules and regulations, thus petitioner cannot be
considered as legally dissolved.
46. The Honorable Court in the case of Stablewood

Philippines, Inc. vs. CIR, discussed the importance of
obtaining tax clearance, to wit:
Based on the foregoing, it is evident

that if the corporation permanently ceases
its operations before full utilization of the
tax credits it opted to carry over, it may be
allowed to claim the refund of the
remaining tax credits as an exception to the
irrevocability rule under Section 76 of the
N/RC of 1997, as amended. However, the
dissolving corporation must prove that the
termination of its operations is permanent
in nature and that it is cleared from any tax
or other government liabilities before a tax
refund may be granted. Therefore, a
corporation contemplating dissolution
must first secure a tax clearance
certificate from the Commissioner of
Internal Revenue (CIR), which
certificate shall then be submitted to
the Securities and Exchange
Commission (SEC) for the issuance of
the Certificate of Dissolution. Hence,
compliance with Sections 52(C) and 235 of
the NIRC of 1997, as amended, is
necessary before a taxpayer may be issued
a tax refund of its excess CWT. It must be
underscored that this is a safeguard
devised by Congress in order to ensure that
no corporation may escape payment of
taxes and other government liabilities by
simply opting to cease its operations and
dissolve the corporation.
t.
DECISION
In the instant case, petitioner failed

to present the tax clearance certificate
and certificate of dissolution issued by
the BIR and SEC, respectively, in order to
prove that it was cleared of any tax
liability as mandated under Sections
52(C) and 235 of the NIRC of 1997, as
amended. Petitioner's submission of
notice to the BIR informing the latter of the
approval of the dissolution of its corporate
existence by its shareholders and directors
is not determinative of whether petitioner
is cleared from any taxes and other
government liabilities.
4 7. As discussed above, an uncertainty exist as to the true

nature of the merger. With this uncertainty, the
merger cannot be considered as the merger
contemplated under Section 40 of the NIRC of 1997.
Section 40 states that:
SEC. 40. Determination of Amount and

Recognition of Gain or Loss. -
XXX
(C) Exchange of Property.-
XXX
(2) Exception. - No gain or loss shall be
recognized if in pursuance of a plan of merger
or consolidation -
(a) A corporation, which is a party to a merger
or consolidation, exchanges property solely for
stock in a corporation, which is a party to the
merger or consolidation; or
(b) A shareholder exchanges stock in a
corporation, which is a party to the merger or
consolidation, solely for the stock of another
corporation also a party to the merger or
consolidation; or
(c) A security holder of a corporation, which is
a party to the merger or consolidation,
exchanges his securities in such corporation,
solely for stock or securities in such
corporation, a party to the merger or
consolidation.
No gain or loss shall also be recognized if
property is transferred to a corporation by a
person in exchange for stock or unit of
participation in such a corporation of which as
a result of such exchange said person, alone or
together with others, not exceeding four ( 4)
L
DECISION
persons, gains control of said

corporation: Provided, That stocks issued for
services shall not be considered as issued in
return for property.
XXX
(6) Definitions. -
(a) The term 'securities' means bonds and
debentures but not 'notes' of whatever class or
duration.
(b) The term 'merger' or 'consolidation~ when
used in this Section, shall be understood to
mean: (i) the ordinary merger or consolidation,
or (ii) the acquisition by one corporation of all
or substantially all the properties of another
corporation solely for stock: Provided, That
for a transaction to be regarded as a
merger or consolidation within the
purview of this Section, it must be
undertaken for a bona fide business
purpose and not solely for the purpose of
escaping the burden of taxation:
Provided, further, That in determining
whether a bona fide business purpose
exists, each and every step of the
transaction shall be considered and the
whole transaction or series of transaction
shall be treated as a single unit: Provided,
finally, That in determining whether the
property transferred constitutes a substantial
portion of the property of the transferor, the
term 'property' shall be taken to include the
cash assets of the transferor.
(c) The term 'control', when used in this
Section, shall mean ownership of stocks in a
corporation possessing at least fifty-one
percent (51 °/o) of the total voting power of all
classes of stocks entitled to vote.
XXX
48. A mere claim of merger does not ipso facto make such
transaction exempt from income tax, documentary
stamp tax and value added tax. For a transaction to
be regarded as a merger or consolidation within the
purview of the section above stated, petitioner must
prove every detail of the transaction and that it was
undertaken for a bona fide business purpose and not
solely for the purpose of escaping the burden of
taxation. In determining whether a bona fide business
purpose exists, each and every step of the transaction
t.
DECISION
shall be considered and the whole transaction or

series of transaction shall be treated as a single unit.

income tax.
49. Failure on the part of petitioner to prove every step of

the transaction was undertaken for a bona fide
business purpose, petitioner is liable to pay the
amount of P1,163,059,820.35
FMV of MFC's Net Assets P1.253.550.820.35

SMFI share issued to MFC at BV based on SMFI's Equity p 54,962.901.41
Which-ever is higher of the above figures P1,253,550,820.35
Cost: (Book Value of MFC's Net Assets per FS) 9,049.100.00
Taxable gain Pl. 163,059.820.35

documentary stamp tax.
Basic deficiency DST on

transfer of real properties due
to merger-P44,375,944.94
Basic deficiency DST on

assumption of notes payable
due to merger-
P15,520,000.00
SO. In relation to the merger entered into by SMFI and

MFC, the former as the surviving corporation, the DST
liability on the transfer of real properties, was based
on Sec. 196 of the NIRC, and on the assumption of
notes payable by SMFI, pursuant to Sec. 179 of the
NIRC of 1997, as amended.
51. All told, the burden of proof is on the taxpayer

contesting the validity or correctness of an
assessment to prove not only that the Commissioner
of Internal Revenue is wrong, but also that the
taxpayer is right. The presumption in favor of the
correctness of tax assessment stands where evidence
to the contrary is wanting.
52. Well-settled is the rule that tax assessments are

entitled to the presumption of correctness and made
in good faith. The taxpayer has the duty to prove
otherwise. In the absence of proof of any irregularities
in the performance of duties, an assessment duly
made by a Bureau of Internal Revenue examiner, and
approved by his superior officers will not be disturbed.
t.
DECISION
All presumptions are in favor of the correctness of tax

assessments (Sy Po vs. Court of tax Appeals, 164
SCRA 524). Dereliction on the part of petitioner to
satisfactorily overcome the presumption of regularity
and correctness of the assessment will justify the
judicial upholding of said assessment notices."
The Pre-Trial Conference was set on October 8, 2015. 25

The Pre-Tria I Brief for Petitioner26 was filed on October 2,
2015; while respondent's Pre-Trial Brief2 7 was filed on
October 5, 2015.
The parties then filed their Joint Stipulation of Facts and

Issues 28 on October 28, 2015, which was approved by the
Court in its Resolution 29 dated November 11, 2015. The Court
issued its Pre-Trial Order on February 2, 2016, which, among
others, terminated the pre-trial. 30
Petitioner presented Atty. Ma. Celeste L. Ramos 31 and

Mauvir C. Buzon 32 as its witnesses.
On May 27, 2016, petitioner filed its Formal Offer of

Evidence 33 I offering Exhibits "P-1" I "P-2" I "P-3" I "P-4" I "P-5" I
"P-6", "P-7", "P-8", "P-9", "P-10", "P-10.1", "P-10.2", "P-
10.3", "P-10.4", "P-10.5", "P-10.6", "P-10. 7", "P-10.8", "P-
10.9", "P-11", "P-12", "P-13", "P-14", "P-14.1", "P-15", "P-
15.1", "P-16", "P-16.1", "P-17", "P-17.1", "P-18", "P-19", "P-
20" ' "P-21" I "P-22" I "P-23" I "P-24" I "P-25" I "P-26 I "P-27" I "P-
28" I "P-29" I "P-30" I "P-31" I "P-32" I "P-33" I "P-34" I "P-35" I
"P-36" I "P-37" I "P-38" I "P-39" I "P-40" I "P-41" I "P-42" I "P-43" I
"P-44" I "P-45"I "P-46" I "P-47"I "P-48" I "P-48-1"I "P-49" I and
"P-49-1" as its documentary evidence. Respondent failed to
file his comment thereto. 34
25 Resolution dated September 7, 2015, Docket, Vol. I, p. 220.

26 Docket, Vol. II, pp. 1126-1145.
27
Docket, Vol. II, pp. 1157-1163.
28
29
Docket, Vol. II, p. 1198.
30
31
Minutes of the hearing dated February 2, 2016, Docket, Vol. II, pp. 1237-1239.
32
Minutes of the hearing dated March 1, 2016, Docket, Vol. II, pp. 1245-1246
33 Docket, Vol. III, pp. 1261-1281.
34 Records Verification dated June 23, 2016, Docket, Vol. III, p. 1921.
{_
DECISION
In the Resolution 35 dated July 28, 2016, the Court

admitted all the formally offered exhibits as petitioner's
evidence.
The documentary exhibits formally offered by the

petitioner and admitted by the Court are as follows:
EXHIBIT DESCRIPTION
P-1 Securities and Exchange Commission ("SEC")
Certificate of Registration with attached Articles of
Incorgoration of San Mi_guel Foods Inc. !
P-2 Bureau of Internal Revenue ("BIR") Certificate of

Registration of San Miguel Foods Inc.
P-3 Letter-Denial of Petitioner's Request for
Reconsideration dated March 12, 2015 received on
April 21, 2015
P-4 Certificate of Merger
P-5 Articles of Me'=g_er and Plan of Merger
P-6 Audited Financial Statement for taxable year
December 31, 2010 of San Miguel Foods, Inc.
P-7 Audited Financial Statements for taxable year period
ending August 31, 2010 of Monterey Foods
Corporation
P-8 SEC Certificate of Filing of Amended Articles of
Incorporation with Articles of Incorporation of
Monterey Foods Corporation
P-9 BIR Certificate of Registration of Monterey Foods
Corporation
P-10 Letter dated August 16, 2010 with attached
supporting documents
P-10.1 SIR Form No. 1927 (Application and Joint
Certification)
P-10.2 BIR Form No. 0605 for filing fee of the tax-free merger
ruling application
P-10.3 BIR Form No. 2000 for the tax due amounting to
P98,402
P-10.4 Certification executed by the Corporate Secretary of
petitioner, Alexandra Bengson Trillana with attached
2010 General Information Sheet of SMFI and MFC and
2010 Audited Financial Statements of SMFI
P-10.5 Certification executed by MFC's Finance Manager,
Evangeline Zarate on the valuation of Property and
Equipment and Investment Properties of MFC at
original or historical cost
t
DECISION
P-10.6 Certification executed by Evangeline Zarate on the

transfer of assets and liabilities by MFC to SMFI at
book value with attached Annex showing the
original/historical cost, fair market value and book
value for each asset and liability transferred
P-10.7 Certificate of Filing of the Articles and Plan of Merger
P-10.8 Certificate of Filing of Amended Articles of
Incor_Q_oration of SMFI
P-10.9 Certificate of Filing of Amended Articles of
Incorporation of MFC
P-11 DST Return with Reference No. 141000004054774
P-12 Short Period Income Tax Return filed through
Electronic Filing and Payment System for the period
ended August 31, 2010 on September 30, 2010, with
attached manually filed tentative BIR Form 1702 on
October 14, 2010
P-13 Amended Short Period Income Tax Return filed
through Electronic Filing and Payment System for the
period ended August 31, 2010 on May 17, 2011 and
manually filed the same on May 23, 2011
P-14 Original Monthly VAT Declaration for January 2010
with Reference No. 091000003586294 filed on
February 19, 2010
P-14.1 Amended Monthly VAT Declaration for January 2010
with Reference No. 091000003875506 filed on June 1
17, 2010
P-15 Original Monthly VAT Declaration for February 2010 1
with Reference No. 091000003653823 filed on March

19, 2010
P-15.1 Amended Monthly VAT Declaration for February 2010
with Reference No. 091000003875680 filed on June
17,2010
P-16 Original Quarterly VAT Return for the 1st Quarter of
2010 with Reference No. 101000003731071 filed on
April 20, 2010
P-16.1 Amended Quarterly VAT Return for the 1st Quarter of
June 17, 2010
P-17 Original Monthly VAT Declaration for April 2010 with
Reference No. 091000003806945 filed on May 20,
2010
P-17.1 Amended Monthly VAT Declaration for April 2010 with
Reference No. 091000003876117 filed on June 17,
2010
P-18 Original Monthly VAT Declaration for May 2010 with
Reference No. 091000003878920 filed on June 18,
2010
P-19 Original Quarterly VAT Return for the 2nd Quarter of
July 20, 2010
t.
DECISION
P-20 Original Monthly VAT Declaration for July 2010 with

Reference No. 091000004025973 filed on August 20,
2010
P-21 Original Monthly VAT Declaration for August 2010
with Reference No. 091000004105489 filed on
September 20, 2010
P-22 Original Quarterly VAT Return for the 3rd Quarter of
October 20, 2010
I
P-23 Letter dated August 21, 1998 notifying and classifying
I SMFI as a large taxpayer
I
P-24 Letter dated January 12, 2007 notifying and
classifying MFC as large taxpayer
P-25 Letter of Authority No. 116-2011-00000002 dated
May- 12L 2011
P-26 First Waiver dated May 20, 2013
P-27 Second Waiver dated September 11, 2013
P-28 Third Waiver dated January 29, 2014
P-29 Preliminary Assessment Notice dated August 12, 20141
("PAN") '
P-30 Letter dated August 27, 2014 I
P-31 Formal Letter of Demand with attached Final

Assessment Notices and Details of Discrepancy dated '
October 9, 2014 received on October 10, 2014
("FAN")
P-32 Letter-Protest dated November 9, 2014
P-33 SIR Ruling 424-2014 dated October 24, 2014
P-34 Final Decision on Disputed Assessment dated January
12, 2015 ("FDDA")
P-35 Letter-Request for Reconsideration dated February 5,
2015
P-36 SIR Form 1905 or the Application for Registration
Information Update filed by MFC with attached list of
unused sales invoice, official receipts and other
accountable forms
P-37 General Information Sheet of SMFI for 2010
P-39 Amended General Information Sheet of SMFI for 2012
P-40 Amended General Information Sheet of SMIF for 2013
P-41 Amended General Information Sheet of SMFI for 2014
P-43 Secretary's Certificate re: List of Stockholders of
Monterey Foods CorQ_oration
P-44 Secretary's Certificate re: List of Stockholders of San
Miguel Foods, Inc.
P-45 Secretary's Certificate issued by Assistant Corporate
Secretary of petitioner on the adoption of the Board
and Stockholder' resolutions authorizing the merger
between _Qetitioner and MFC
c
DECISION
P-46 BIR Ruling No. 214-12 dated March 28, 2012

P-47 Certification with attached Decision [Commissioner of
Internal Revenue v. Pilipinas Shell Petroleum
Corporation, 736 SCRA 623 (2014)] by the Deputy
Clerk of Court of the Supreme Court
P-48 Judicial Affidavit of Ma. Celeste Legaspi-Ramos
P-48-1 Signature of Ma. Celeste Legaspi-Ramos
P-49 Judicial Affidavit of Mauvir C. Buzan
P-49-1 Signature of Mauvir C. Buzan
On October 11, 2016, respondent presented Revenue

Officer Maria Gracielle Cecilia San Pedro Ana ban as witness. 36
Thereafter, the Respondent's Formal Offer of Evidence 37

was filed on October 28, 2016, offering Exhibits "R-1", "R-2",
"R-3" , "R-4" I "R-5" I "R-6"I "R-7" I "R-8" I "R-9" I "R-10" I "R-
11", "R-12" I "R-13" I "R-14" I "R-15" I "R-16" I "R-17" I and "R-
17-1" as his documentary exhibits. Petitioner filed its
Comment [on Respondent's Formal Offer of Evidence dated
October 27, 2016]3 8 on November 18, 2016.
In the Resolution 39 dated December 21, 2016, the Court

admitted Exhibits "R-1" , "R-2" I "R-3" I "R-4" I "R-5" I "R-6" I "R-
7" , "R-8" I "R-9" I "R-10" I "R-11" I "R-12" I "R-13" I "R-14" I "R-
15", "R-17" and "R-17-1", but denied the admission of Exhibit
"R-16".
The admitted documentary exhibits formally offered by

the respondent are the following:
EXHIBIT DESCRIPTION
R-1 Letter of Authority (LOA) No. 116-2011-00000002
dated May 12, 2011
R-2 Letter dated May 12, 2011
R-3 Letter received by Monterey on July 14, 2011
R-4 Letter dated April 24, 2012 and served to petitioner
on April 27, 2012
36
Minutes of the hearing dated October 11, 2016, Docket, Vol. III, pp. 1937-1940.
38
Docket, Vol. III, pp. 1963-1967.
t:_
DECISION
R-5 Letter dated November 12, 2012 and served to

petitioner on November 14, 2012
R-6 Memorandum of Assignment issued on February 25,
2013
R-7 Undated Letter
R-8 Waiver of the Defense of Prescription Under the
Statute of Limitations executed on May 20, 2013
Statute of Limitations executed on September 11,
2013
Statute of Limitations executed on January 29, 2014
R-11 Memorandum dated July 28, 2014 recommending the
issuance of the Preliminary Assessment Notice (PAN)
R-12 Preliminary Assessment Notice (PAN) dated August
12, 2014 with Details of Discrepancies
R-13 Memorandum dated September 26, 2014
R-14 Formal Letter of Demand dated October 9, 2014 with
attached Final Assessment Notice and Details of
Discrepancies
R-15 Final Decision on Disputed Assessment FDDA dated
January 12, 2015
R-17 Judicial Affidavit of Revenue Officer Maria Gracielle
Cecilia F. San Pedro
R-17-1 Signature above the name Maria Gracielle Cecilia F.
San Pedro
The case was declared submitted for decision on

February 28, 2017, 40 considering the filing of the
Memorandum for Petitioner4 1 on January 31, 2017 and the
Records Verification 42 dated February 17, 2017 issued by the
Court's Judicial Records Division stating that respondent
failed to file a memorandum.
The parties submitted the following issues for the Court's

resolution : 43
1. Whether or not petitioner is liable to pay

deficiency income tax, VAT and DST in the
aggregate amount of P1,570,938, 751.79,
inclusive of interest, surcharge and compromise
40
Resolution dated February 28, 2017, Docket, III, p. 2022.
41
Docket, Vol. III, pp. 1974-2018.
42
Docket, Vol. III, p. 2019.
43
JSFI, Docket, Vol. II, pp. 1183-1184.
t.
DECISION
penalties, for the period January 1, 2010 to

August 31, 2010.
a. Whether or not the right of the

government to assess petitioner for
deficiency income tax, VAT and DST for
the period January 1, 2010 to August 31,
2010 has prescribed.
b. Whether or not the assessments for

deficiency income tax, VAT and DST have
factual and legal basis.
c. Whether or not the assessments for

alleged deficiency income tax, VAT and
DST are violative of the rule on non-
retroactivity of rulings under Section 246
of the 1997 NIRC.
d. Whether or not the assessment of

deficiency VAT on the transfer of real
properties pursuant to a merger is proper.
e. Whether or not the assessment of

deficiency DST on the transfer of real
properties pursuant to a merger is proper.
Before going into the merits of the case, the Court shall
first determine the timeliness of the filing of the present
Petition for Review in accordance with Section 228 of the
NIRC of 1997, as amended, which is quoted hereunder for
ready reference:
"SEC. 228. Protesting of Assessment. - When the

Commissioner or his duly authorized representative
finds that proper taxes should be assessed, he shall
first notify the taxpayer of his findings: Provided,
however, That a preassessment notice shall not be
required in the following cases:
XXX XXX XXX
~
DECISION
The taxpayers shall be informed in writing of the

law and the facts on which the assessment is made;
otherwise, the assessment shall be void.
Within a period to be prescribed by implementing

rules and regulations, the taxpayer shall be required to
respond to said notice. If the taxpayer fails to respond,
the Commissioner or his duly authorized representative
shall issue an assessment based on his findings.
Such assessment may be protested

administratively by filing a request for reconsideration
or reinvestigation within thirty (30) days from receipt
of the assessment in such form and manner as may be
prescribed by implementing rules and regulations.
Within sixty (60) days from filing of the protest, all
relevant supporting documents shall have been
submitted; otherwise, the assessment shall become
final.
If the protest is denied in whole or in part, or is

not acted upon within one hundred eighty ( 180) days
from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the
Court of Tax Appeals within thirty (30) days from
receipt of the said decision, or from the lapse of the one
hundred eighty (180)-day period; otherwise, the
decision shall become final, executory and
demandable."
In this case, petitioner received the FLO-FAN dated

October 9, 2014 for alleged deficiency income tax, VAT, and
OST in the aggregate amount of P1,840,424,492.03 on
October 10, 2014. Within thirty (30) days from receipt of
the FLO on October 10, 2014, petitioner filed its
administrative protest on November 10, 2014 44 •
On January 14, 2015, the FOOA dated January 12, 2015

was issued by OIC-Assistant Commissioner Nestor S.
Valeroso upholding the deficiency income tax, VAT, and OST
assessments for the period covering January 1, 2010 to
August 31, 2010 in the aggregate amount of
P1,570,938,751.79, inclusive of interest, surcharge and
44 November 9, 2014 being a Sunday.
c.
DECISION
compromise penalties. On February 6, 2015, petitioner filed

a Request for Reconsideration with respondent. On April 21,
2015, petitioner received the Letter dated March 12, 2015
from respondent, denying its Request for Reconsideration.
Applying Section 228 of the NIRC of 1997, as amended,

the taxpayer adversely affected by the decision of respondent
may appeal to this Court within thirty (30) days from receipt
of said decision. Thus, petitioner had a period of 30 days
from April 21, 2015 or until May 21, 2015, within which to file
its Petition for Review before this Court. Petitioner filed the
present Petition for Review on May 15, 2015. Clearly, the
Court has acquired jurisdiction over the instant case.
Having discussed the timeliness of the filing of the

present Petition for Review, the next question is "Whether
petitioner is liable to pay deficiency income tax, VAT and OST
in the aggregate amount of P1,570,938,751.79, inclusive of
interest, surcharge and compromise penalties, for the period
January 1, 2010 to August 31, 2010". The answer is no.
Petitioner is not liable to pay the assessed deficiency

income tax, VAT and OST on the ground that that the FLO and
FANs are intrinsically void for failure of the FLO and FANs to
demand payment of the taxes due within a specific period;
and for having been issued without a valid Letter of Authority
(LOA).
Lack of demand to pay the taxes

due within a specific period
A review of the FLO and FANs issued against petitioner

discloses that both failed to demand payment of the taxes
due within a specific period. While the FL0 45 specifically states
that:
45 Exhibit 13; Exhibit H.
c.
CfA CASE NO. 9046 Page 32 of 41
DECISION
"xxx, you are hereby requested to pay your deficiency

tax liabilities xxx within the time shown in the enclosed
assessment notice. " 46 (Boldfacing supplied)
the spaces for the due dates in the enclosed FANs were
conspicuously left blank.
In case of Commissioner of Internal Revenue vs. Pascor

Realty and Development Corporation, 47 the Supreme Court
emphasized the requirement for an assessment to contain a
specific demand for payment within a prescribed period in this
wise:
"An assessment contains not only a computation of

tax liabilities, but also a demand for payment within a
prescribed period. It also signals the time when penalties
and interests begin to accrue against the taxpayer. To
enable the taxpayer to determine his remedies thereon, due
process requires that it must be served on and received by
the taxpayer. XXX XXX XXX.
XXX XXX
To start with, an assessment must be sent to and

received by a taxpayer, and must demand payment of
the taxes described therein within a specific period.
Thus, the NIRC imposes a 25 percent penalty, in addition to
the tax due, in case the taxpayer fails to pay the deficiency
tax within the time prescribed for its payment in the notice
of assessment. Likewise, an interest of 20 percent per
annum, or such higher rate as may be prescribed by rules
and regulations, is to be collected from the date prescribed
for its payment until the full payment.
XXX XXX XXX. Necessarily,

the taxpayer must be certain that a specific document
constitutes an assessment. Otherwise, confusion
would arise regarding the oeriod within which to
make an assessment or to protest the same, or
whether interest and penalty may accrue thereon.
In the present case, the revenue officers' Affidavit

merely contained a computation of respondents' tax
liability. It did not state a demand or a period for
46
Exhibit "P-31", CTA Docket, Vol. III, pp-1716-1722; Exhibit "R-14", BIR Records,
pp. 647-657.
47
G.R. No. 128315, June 29, 1999.
l
DECISION
payment. Xxx xxx." (Boldfacing and underscoring

supplied)
Moreover, a FAN is not valid if it does not contain a

definite due date for payment by the taxpayer. 48 In the case
of Commissioner of Internal Revenue vs. Fitness by Design,
Inc., 49 the importance of a definite and actual demand to pay
the tax assessment was reiterated by the Supreme Court:
"Second, there are no due dates in the Final

Assessment Notice. This negates petitioner's demand
for payment. Petitioner's contention that April 15,
2004 should be regarded as the actual due date
cannot be accepted. The last paragraph of the Final
Assessment Notice states that the due dates for
payment were supposedly reflected in the attached
assessment:
In view thereof, you are requested to pay your

aforesaid deficiency internal revenue tax liabilities
through the duly authorized agent bank in which you
are enrolled within the time shown in the enclosed
assessment notice. (Emphasis in the original)
However, based on the findings of the Court of Tax

Appeals First Division, the enclosed assessment
pertained to remained unaccomplished.
Contrary to petitioner's view, April 15, 2004 was

the reckoning date of accrual of penalties and
surcharges and not the due date for payment of tax
liabilities. The total amount depended upon when
respondent decides to pay. The notice, therefore, did
not contain a definite and actual demand to pay.
Compliance with Section 228 of the National Internal

Revenue Code is a substantive requirement. It is not a mere
formality. Providing the taxpayer with the factual and legal
bases for the assessment is crucial before proceeding with
tax collection. Tax collection should be premised on a valid
assessment, which would allow the taxpayer to present his
or her case and produce evidence for substantiation."
(Boldfacing supplied)
48 Commissioner of Internal Revenue vs. Fitness by Design, Inc., G.R. No. 215957,
November 9, 2016.
49 G.R. No. 215957, November 9, 2016.
L
DECISION
To be considered as valid, the FANs must not only

indicate the legal and factual bases of the assessments but
must also state a clear and categorical demand for
payment of the computed tax liabilities within a
specific period. The requirement to indicate a fixed and
definite period or a date certain within which a taxpayer must
pay the assessed deficiency tax liabilities is indispensable to
the validity of a FAN. In other words, a FAN cannot be deemed
valid absent a specific date or period within which the alleged
tax liabilities must be settled or paid by the taxpayer.
The fatally infirmed FANs and consequently, the FLD and

FDDA, which demand from petitioner the payment of the
deficiency income tax, VAT and DST for the period January 1,
2010 to August 31, 2010, must perforce be cancelled and set
aside.
Lack of a valid LOA
A careful perusal of the records of the case reveals that

the Revenue Officer (RO) who conducted the audit of
petitioner was not duly authorized pursuant to a valid LOA.
The following are the events that transpired relative to the
issuance of the FLD and FANs:
• May 31, 2011 - petitioner received LOA No.

116-2011-00000002 dated May 12, 2011 50
signed by Zenaida G. Garcia, Assistant
Commissioner, Large Taxpayers Service,
authorizing Revenue Officers (RO) - Cletofel
Parungao, Myrna Ramirez, Ma. Salud
Maddela, Zenaida Paz, Allan Maniego,
Joel Aguila, and Group Supervisor (GS)
Glorializa Samoy of LT Regular Audit
Division 1 to examine its books of accounts
and other accounting records for all internal
revenue taxes for the period from January 1,
2010 to August 31, 2010.
50 Exhibit "P-25", CTA Docket, Vol. III, 1699; Exhibit "R-1", BIR Records, p. 103.
(_
DECISION
• February 25, 2013 - Cesar D. Escalada, Chief,

Regular LT Audit Division 1, issued a
Memorandum of Assignment (MOA) No. LOA-
116-2013-045251 to RO Maria Gracielle
Cecilia F. San Pedro and GS Juvy S. De Ia
Pena for the continuation of the
audit/investigation to replace the previously
assigned RO(s) who resigned I retired I
transferred to another district office.
• July 28, 2014 - RO San Pedro submitted a

Memorandum, 5 2 which was noted by GS Allan
M. Maniego and with recommending approval
of Mr. Escalada, to Officer-in-Charge,
Assistant Commissioner (OIC-ACIR) Nestor S.
Valeroso, Large Taxpayer Service,
recommending that a Preliminary Assessment
Notice (PAN) be approved and issued to
Monterey Foods Corporation covering the
taxable period from January 1 to August 31,
2010. The Memorandum was approved by
OIC-ACIR Valeroso.
• August 12, 2014, petitioner received the PAN 53

dated August 12, 2014 from OIC-ACIR
Valeroso assessing petitioner for alleged
deficiency income tax, withholding tax on
compensation, VAT, and DST, inclusive of
interest, surcharge, and compromise penalty
covering the taxable period from January 1 to
August 31, 2010.
• August 27, 2014 - petitioner sent a Letter

dated August 27, 2014 54 to the Commissioner
of Internal Revenue (CIR), thru Mr. Escalada,
contesting the PAN.
51 Exhibit "R-6", BIR Records, p. 282.

52 Exhibit "R-11", BIR Records, pp. 543-554.
53 Exhibit "P-29" and "R-12", CTA Docket, Vol. III, pp. 1703-1708 and BIR Records,
pp. 589-594.
54 Exhibit "P-30", CTA Docket, Vol. III, pp. 1709-1715.
{
DECISION
• September 26, 2014 - RO San Pedro

submitted a Memorandum, 55 which was noted
by GS Maniego and with recommending
approval of Mr. Escalada, to OIC-ACIR
Valeroso, recommending that FLO be
approved and issued to Monterey Foods
Corporation covering the taxable period from
January 1 to August 31, 2010. The
Memorandum was approved by OIC-ACIR
Valeroso.
• October 10, 2014- petitioner received the FLO

dated October 9, 2014 with attached FANs
dated October 9, 2014 and Details of
Discrepancy 56 issued by then CIR Kim S.
Jacinto-Henares against Monterey Foods
Corporation.
While GS Maniego was named in LOA No. 116-2011-

00000002 as one of the ROs authorized to conduct the audit
of petitioner, records reveal that his actual participation in the
audit of petitioner was limited to merely noting the audit
results conducted by RO San Pedro. In her Judicial Affidavit
dated October 5, 2015, 57 RO San Pedro admitted that she was
one of the ROs who continued the audit of petitioner for the
period January 1, 2010 to August 31, 2010 and that the basis
of her authority to do so was the Memorandum of Assignment
issued on February 25, 2013. 58 A plain reading of said
Memorandum of Assignment indicates that the GS assigned
to continue the audit was GS Dela Pena, and not GS
Maniego. At any rate, there is nothing in the records
which would show that a new LOA was issued granting
RO San Pedro and GS Maniego to continue the audit of
petitioner for the period January 1, 2010 to August 31,
2010.
While petitioner failed to raise the issue of lack of

authority of RO San Pedro and GS Maniego to continue the
55 Exhibit "R-13", BIR Records, pp. 639-642.
56 Exhibit "P-31", CTA Docket, Vol. III, pp-1716-1722; Exhibit "R-14", BIR Records,
pp. 647-657.
57
Exhibit "R-17", CTA Docket, Vol. II, pp. 1150-1156.
58 Exhibit "R-6", BIR Records, p. 282.
t-
DECISION
conduct of petitioner's audit, this Court is not precluded from

considering this issue as the absence of a valid LOA renders
an assessment intrinsically void. A void assessment bears no
fruit, 59 and it is settled that estoppel cannot operate to give
an effect to an assessment which is void ab initio.
Pursuant to Section 1, Rule 14 of A.M. No. 05-11-07-

CTA, or the Revised Rules of the Court of Tax Appeals, this
Court is not bound by the issues specifically raised by the
parties but may also rule upon related issues necessary to
achieve an orderly disposition of the case, to wit:
"SECTION 1. Rendition of judgment. - x xx
In deciding the case, the Court may not limit itself to the
issues stipulated by the parties but may also rule upon
related issues necessary to achieve an orderly disposition of
the case.
Furthermore, in the case of Commissioner of Internal

Revenue vs. Lancaster Philippines, Inc. 60, the Supreme Court
reiterated that the CTA can resolve the issue on the authority
of the ROs to conduct the audit, albeit the same was not
raised by the parties in their pleadings or memoranda, viz.:
"On whether the CTA can resolve an issue which was

not raised by the parties, we rule in the affirmative.
XXX XXX XXX
Xxx xxx xxx, the CTA Division was, therefore,

well within its authority to consider in its decision the
question on the scope of authority of revenue officers
who were named in the LOA even though the parties
had not raised the same in their pleadings or
memoranda. The CTA En Bane was likewise correct in
sustaining the CTA Division's view concerning such matter."
59 Metro Star Superama, Inc. vs. Commissioner of Internal Revenue, G.R. No. 185371,
December 8, 2010.
60
G.R. No. 183408, July 12, 2017.
t_
DECISION
In the absence of a valid LOA, the Supreme Court in the

Lancaster Case 61 ultimately resolved to declare the
assessment void.
As the crux of the controversy revolves around whether

petitioner may be held liable for deficiency taxes subject of
the assessment issued by respondent, the issue about the
RO's authority to conduct the audit necessarily relates thereto
for its absence makes the assessment a nullity. The
importance of the RO's authority to conduct the audit cannot
be over-emphasized as it goes into the issue of the validity of
the assessment.
The Supreme Court's pronouncement in Medicard

Philippines Inc. vs. Commissioner of Internal Revenue 62 on
the matter of the authority of ROs who conducted the audit
and examination of the taxpayer is instructive, viz.:
"The absence of an
LOA violated
MEDICARD's right to
due process
An LOA is the authority given to the appropriate

revenue officer assigned to perform assessment
functions. Xxx xxx xxx. An LOA is premised on the
fact that the examination of a taxpayer who has
already filed his tax returns is a power that statutorily
belongs only to the CIR himself or his duly authorized
representatives. Section 6 of the NIRC clearly provides as
follows:
XXX XXX XXX
Based on the afore-quoted provision, it is clear

that unless authorized by the CIR himself or by his
duly authorized representative, through an LOA, an
examination of the taxpayer cannot ordinarily be
undertaken. Xxx xxx xxx. Hence, unless
undertaken by the CIR himself or his duly authorized
representatives, other tax agents may not validly
conduct any of these kinds of examinations without
prior authority.
61
Ibid.
62
G.R. No. 222743, April 5, 2017.
i
DECISION
XXX XXX XXX
That the SIR officials herein were not shown to

have acted unreasonably is beside the point because
the issue of their lack of authoritv was only brought
uo during the trial of the case. What is crucial is
whether the proceedings that led to the issuance of
VAT deficiency assessment against MEDICARD had
the prior approval and authorization from the CIR or
her duly authorized representatives. Not having
authority to examine MEDICARD in the first place, the
assessment issued by the CIR is inescapably void."
(Citations omitted; boldfacing and underscoring supplied)
A BIR officer cannot simply subject a taxpayer to audit

without valid authority issued for that purpose. Section 13 of
the NIRC of 1997, as amended, provides:
"SEC. 13. Authority of a Revenue Officer. - Subject to

the rules and regulations to be prescribed by the Secretary
of Finance, upon recommendation of the Commissioner, a
Revenue Officer assigned to perform assessment
functions in any district may, pursuant to a Letter of
Authority issued by the Revenue Regional Director,
examine taxpayers within the jurisdiction of the district in
order to collect the correct amount of tax, or to
recommend the assessment of any deficiency tax due
in the same manner that the said acts could have been
performed by the Revenue Regional Director himself."
Furthermore, Revenue Memorandum Order (RMO) No.

43-90 is explicit that the continuation of audit by a revenue
officer other than the officer named in a previous LOA requires
the issuance of a new LOA:
"C. Other policies for issuance of L/As.
XXX XXX XXX
5. Any re-assignment/transfer of cases to

another ROs, and revalidation of L/As which have
already expired, shall require the issuance of a new
L/A, with the corresponding notation thereto, including the
previous L/A number and date of issue of said L/As."
(Boldfacing and underscoring supplied)
t
DECISION
Simply put, the issuance of an LOA prior to the

conduct of an examination of a taxpayer's books and
other accounting records by any revenue officer is
indispensable to the validity of an assessment. In the
language of Commissioner of Internal Revenue vs. Sony
Philippines, Inc., 63 its absence makes the assessment or
examination a nullity, viz.:
"Based on Section 13 of the Tax Code, a Letter of

Authority or LOA is the authority given to the
appropriate revenue officer assigned to perform
assessment functions. It empowers or enables said revenue
officer to examine the books of account and other
accounting records of a taxpayer for the purpose of
collecting the correct amount of tax.
XXX XXX XXX
Clearly, there must be a grant of authority before

any revenue officer can conduct an examination or
assessment. Equally important is that the revenue officer
so authorized must not go beyond the authority given. In
the absence of such an authority, the assessment or
examination is a nullity." (Boldfacing supplied)
In fine, the necessity of a valid LOA in audit

investigations is not merely an administrative requirement
but a statutory requirement which is vital to the validity of an
audit of a taxpayer, and consequently, to the validity of the
FAN that may be issued after said audit. Here, the absence
of a new LOA authorizing RO San Pedro and GS Maniego
to continue the audit of petitioner for the period
January 1, 2010 to August 31, 2010 rendered the
assessment issued against petitioner void.
Having discussed that the examinations and the

assessments are void, the Court will not belabor on the other
issues raised for it is well-settled that a void assessment
bears no fruit 64 •
63
G.R. No. 178697, November 17, 2010.
64
Commissioner of Internal Revenue vs. Metro Star Superama, Inc., G.R. No. 185371,
December 8, 2010.
t
CfA CASE NO. 9046 Page 41 of 41
DECISION
WHEREFORE, premises considered, the instant Petition

for Review is GRANTED. Accordingly, respondent's Formal
Letter of Demand with attached Final Assessment Notices and
Details of Discrepancy, dated October 9, 2014, issued against
petitioner for deficiency income tax, VAT and DST for the
period January 1, 2010 to August 31, 2010 and the Final
Decision on Disputed Assessment (FDDA) dated January 12,
2015, for being intrinsically void, are hereby CANCELLED.
SO ORDERED.
~ N.Mw:~-G~
CIELITO N. MINDARO-GRULLA
Associate Justice
WE CONCUR:
ER~P.UY
Presiding Justice Associate Justice
CERTIFICATION
Pursuant to Article VIII, Section 13 of the Constitution,

it is hereby certified that the conclusions in the above Decision
were reached in consultation before the case was assigned to
the writer of the opinion of the Court's Division.
ROMAN G. DEL Rl>SARIO

Presiding Justice
Chairperson, 1st Division

Cta 1D CV 09046 D 2018feb12 Ass

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Republic of the Philippines

COURT OF TAX APPEALS

SAN MIGUEL FOODS, INC. CTA Case No. 9046

MINDARO - GRULLA, !_.:

This is a Petition for Review 1 filed on May 15, 2015 by

1 Docket, Vol. I, pp. 10-45.

as Section 3(a)(1) 4 of Rule 4 and Section 4(a) 5 of Rule 8 of

Petitioner assails respondent's Final Decision on

Petitioner San Miguel Foods, Inc. is a corporation

On the other hand, respondent is the duly appointed

On May 31, 2011, petitioner received Letter of Authority 8

On August 12, 2014, petitioner received the Preliminary

On August 27, 2014, petitioner sent a Letter 12 to the BIR

On October 10, 2014, petitioner received a Formal Letter

8 Exhibit "P-25", Docket, Vol. III, p. 1699.

On January 14, 2015, the FDDA 18 dated January 12,

On February 6, 2015, petitioner filed a Request for

On April 21, 2015, petitioner received a Letter22 dated

As a result, petitioner filed the instant Petition for Review

Respondent then filed his Answer24 on August 25, 2015

"SPECIAL AND AFFIRMATIVE DEFENSES

5. On the basis of the foregoing allegations and in further

6. Basic as a hornbook principle is that, taxes are the

The Waivers of the Defense

7. Section 222(b) of the National Internal Revenue Code

8. Petitioner executed three Waivers of the Defense of

1. The first waiver (attached herein as Annex A)

2. The second waiver (attached herein as Annex B)

3. The third waiver (attached herein as Annex C)

executed within the period to assess as stated in

9. Petitioner alleged that the waivers were defective on

1. That the waivers failed to state the kind and

10. The allegations of petitioner do not hold water. For the

11. Further, the Letter of Authority (LOA) was issued and

practice should not be permitted and tolerated. The

14. Viewed in the light of the foregoing considerations the

Assuming for the sake of

15. The essence of estoppel and laches is the failure or

16.Article 1431 of the Civil Code provides that in order

'Art. 1431. Through estoppel an

17. The case of Kalalo v. Luz discussed estoppel in this

'The essential elements of estoppel in

favor. As related to the party to be

18. Corollary, Section 2(a) of Rule 131 of the Rules of

'SEC. 2 Conclusive presumptions. - The

'(a) Whenever a party has, by his own

19. Petitioner, by its own voluntary act, is estopped from

20. Through the execution of the waivers, respondent was

the Statute of Limitations. Petitioner then actively

21. Further, a party having performed affirmative acts

'The doctrine of waiver belongs to the

(2) B. Nature of Doctrine.-The doctrine of

and that the doctrine of waiver does not

22. In the Heirs of Cipriano Reyes vs. Calumpang the

23. Second, petitioner executed not only one waiver, but

24. Respondent humbly posits that petitioner's voluntary

25. Viewed in the light of the foregoing considerations the

Assuming for the sake of

were not validly executed,

26. Revenue Memorandum Orders (RMOs) are

27. Based on the above definition, it is clear that Revenue

28. Thus, being a mere internal guidelines, it is not a

29. Such internal guidelines can be likened to the by-laws